Shopify Capital: Everything You Need to Know (2023)
Small businesses often struggle with obtaining the necessary funding to grow their business. Meanwhile, the lending process in traditional institutions is typically lengthy and difficult.
With Shopify Capital, a financing solution designed specifically for Shopify sellers, the problem is solved.
In this guide, we’ll take a comprehensive look at:
- What Shopify Capital is?
- How it works?
- The pros and cons of this funding solution:
What is Shopify Capital?
Shopify Capital is a funding program offered by Shopify that offers cash advances and loans to eligible Shopify merchants, which they can use to grow their businesses.
The program offers funding amounts that are tailored to the needs of Shopify merchants. Repayment terms are also designed to be more manageable for e-commerce businesses, as they are based on a percentage of daily sales rather than fixed payments.
Is Shopify Capital right for you?
It really depends on who you are and what you need to decide whether Shopify Capital is right for you.
To small and medium-sized businesses, Shopify Capital makes loans a more accessible and faster option. The application process is fast, and you can get the money very soon. This is opposed to traditional business loans, as SMBs may find it harder to borrow money without a strong credit score, collateral, a detailed business plan, financial statements, and a lot of time waiting.
Plus, its repayment policy is flexible as you can pay partially monthly or through a percentage of your daily sales, making it a good idea for businesses fluctuating in sales volume.
A Shopify Capital loan is ideal for businesses borrowing money in the short term. It could be a deal for all its advantages: fast, convenient, and affordable.
However, in the long run, the loan, calculated by the amount you own multiplied by a flat fee, could become pretty large over time.
We suggest that you merchants should carefully calculate how your sales will be deducted (weekly and monthly) to pay your debt to make the most informed decision.
Shopify Capital would be ideal for you if you are:
- Startups in need of funding to launch their online stores and start generating revenue.
- Growing businesses need additional funding to support their expansion.
- Seasonal businesses with fluctuations in sales volume throughout the year, depending on the season or holiday.
- Businesses with limited credit history who find it difficult to borrow somewhere else.
- Businesses with fast-changing inventory in need of funding to quickly purchase and sell inventory before it becomes outdated.
The Pros and Cons of Shopify Capital
Pros of Shopify Capital
- Simple application and fast funding: Once you’re eligible for Shopify Capital, everything becomes so simple. There’s no need for paper checks, tax checks, etc. No personal guarantee or credit check is required. You’re notified and ready to go.
- Flexible repayment terms: Shopify Capital offers 12-month repayment terms. Direct repayments are from sales revenue, which makes it flexible for businesses with fluctuating cash flow.
- Seamless experience: As you sell on Shopify, you’ll find borrowing money from Shopify is very convenient because everything is in the same place.
- Competitive rates for short-term borrowing. The rates of Shopify Capital are pretty reasonable for businesses in need of money in the short term.
- No hidden fees!
Cons of Shopify Capital
- Strict requirements. Shopify Capital is only available to eligible businesses on Shopify – which means not every Shopify business on Shopify can use it.
- The offer is valid for 30 days. After that, the offer expires, and you must wait until getting notified again.
- Limited range. The range of the money you could borrow is pretty limited – only $200-$2 million.
- Passive application. It’s Shopify that initiates the process, not you. So you can’t apply for funding or have no way to control your application.
Shopify Capital requirements: Are you eligible for it?
Shopify Capital has requirements that are both publicized (which you can check) and private (which are decided solely by Shopify).
These are the public requirements that matter:
- You must have Shopify Payments or a third-party payment gateway.
- You must have a Shopify store that has been active for at least 3 months.
- Your business must also be based in the United States, Canada, Australia or the United Kingdom.
Besides the clear Shopify Capital requirements above, Shopify Capital uses AI to consider factors such as sales volume, store performance, and credit history when determining eligibility. These factors are to evaluate if you have a low-risk profile business on Shopify.
To check your eligibility, you can visit the landing page of Shopify Capital.
How does Shopify Capital work?
Here’s how Shopify Capital works:
- Eligibility: You must be a Shopify merchant who meets all the qualifications to be able to use Shopify Capital. Shopify will notify you when you’re eligible.
- Offer: If you receive an offer from Shopify Capital, you should review the terms and conditions, including the amount of funding, the repayment terms, and the flat fee.
- Acceptance: If you accept the offer, the funds will be deposited directly into your Shopify account. You can use the funds to grow your business.
- Repayment: The type of loan you choose decides how you will repay the loan.
- Future Offers: If you successfully repay a Shopify Capital cash advance or loan, you may be eligible for future offers from Shopify Capital, with the potential to receive higher amounts of funding.
2 types of Shopify loans
Two types of funding options are Shopify Capital Loans and Shopify Merchant Cash Advances.
Shopify Capital Loans, quite similar to a traditional bank loan, is a type of financing that allows merchants to borrow a fixed amount of money and pay it back monthly with a flat fee (a factor rate) over a set period.
Shopify Merchant Cash Advances, on the other hand, also mean you borrow a fixed amount of money, but you have to pay it back through a fixed percentage of your daily sales revenue until the cash advance is fully paid off. There are no payment milestones and no fixed amount because your daily sales fluctuate. Shopify will automatically debit a fixed percentage of your daily sales. The money varies, more or less depending on your sales that day.
In short, the key differences between the two types of Shopify funding services are:
|Repayment terms||Shopify Capital Loans||Shopify Merchant Cash Advances|
|Time||Must pay back monthly within 12 months||No fixed term length|
|Amount of money||A fixed amount||No fixed amount|
How to request a Shopify Capital Loan?
The application process for Shopify Capital is quick and easy. Eligible businesses will receive a notification from Shopify Capital in their Shopify dashboard. From there, you can complete an application and receive a funding offer within a few business days.
So let’s say you’re now eligible for Shopify Capital. Here are the next steps:
- Step 1: Go to Settings > Capital > View funding offers.
- Step 2: Choose a funding option > click Request.
- Step 3: Review the Terms and conditions > click Accept terms.
It’s all set. You’re good to go.
How to repay a Shopify Capital loan?
There are two options for you to pay back a Shopify Capital Loan. One is to repay an amount over $20 each time, and the other is to repay one lump sum of your debt.
Here are the steps to repay the loan:
- Step 1: Go to Settings > Capital > Make a payment
- Step 2: Choose the amount of money you want to pay:
- To pay partially: enter the amount in Custom amount
- To pay in full: choose Full remaining balance
- Step 3: Click Next step to review the amount
- Step 4: Click Make a payment
After that, you will get an email confirming that your payment has been made.
What are alternatives to Shopify Capital loans?
Alternatives to Shopify Capital:
- Small Business Administration (SBA) Loans: The SBA offers a range of loan programs to help small businesses access capital. The most popular program is the 7(a) loan program, which offers up to $5 million in funding. The interest rates are competitive, and the repayment terms are flexible.
- Online Lenders: Online lenders such as LendingClub and OnDeck offer a quick and easy way to access funding. The application process is simple and can be completed online, and funding can be approved in as little as 24 hours. However, interest rates may be higher than other options.
- Angel Investors: Angel investors are individuals or groups who invest in early-stage businesses. They may provide funding in exchange for equity in the company. This option can be a good fit for businesses with high growth potential, but it can be difficult to find the right investor.
- Crowdfunding: Crowdfunding platforms like Kickstarter and Indiegogo allow businesses to raise funding from a large number of people. This option can be a good fit for businesses with a product or service that has a broad appeal. However, it can be difficult to stand out from the crowd and raise enough funding.
- Funding platforms: 8fig, Outfund, Clearco, Wayflyer, etc.
How should you spend your Shopify Capital funding?
As you have the fund needed to grow your business, here are a few suggestions on important aspects you should take care of.
- Marketing and Advertising: Investing in marketing and advertising can help increase your sales and grow your business. Consider running Facebook and Google ads or investing in influencer marketing.
- Inventory: Having enough inventory on hand is key to meeting customer demand. Use your funding to purchase inventory in bulk and take advantage of discounts from your suppliers.
- Equipment and Technology: Upgrading your equipment and technology can help improve your efficiency and productivity. Consider investing in new computers, software, or machinery.
- Hiring and Training: Hiring new employees or investing in training for existing ones can help improve the quality of your products and services. Consider hiring a marketing expert, customer service representative, or operations manager.
- Expansion: If you’re looking to expand your business, consider using your funding to open a new location or launch a new product or service.
Do you have to pay back Shopify Capital?
Yes, you have to pay back Shopify Capital. Shopify Capital provides funding to businesses in the form of a cash advance, and the advance must be repaid within a specified time frame. The repayment is made by Shopify debiting a fixed percentage of your daily sales until the advance is paid back in full.
How much does Shopify Capital take?
The amount that Shopify Capital takes as repayment depends on: the amount of the money, the fixed borrowing cost, and the times you repay.
Once you’re eligible, you can borrow $200-$ million, with a flat rate ranging from 1.1 to 1.13. Just multiply the amount you want to pay by a flat rate.
The faster you pay off, the less the money is.
How many times can you use Shopify Capital?
Actually, there is no limit to the times you can use Shopify Capital – as long as you’re qualified and always pay back in time.
Shopify Capital can be a great option for small businesses looking to access funding, but it’s important to consider all the alternatives and choose the one that’s right for your business. Once you have your funding, be strategic in how you spend it to ensure maximum impact.